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Katya Sverdlov Blog

Tuesday, May 12, 2015

Is asset protection a necessary part of estate planning?

Why estate planning: In general, there are many reasons why people engage in estate planning. Those include: death time tax mitigation, avoidance of probate, smooth transition of property at death, and making sure the deceased’s dispositive wishes are followed. Asset protection is an additional aspect of estate planning, which safeguards the assets from the risks they would otherwise be subject to.

What is asset protection: The goal of asset protection is generally to deter litigation. At the same time, the plan must be flexible enough to provide options to the client and to change over time in response to changing laws.  However, asset protection will not aid the client in the avoidance of taxes and it will not aid the client in the fraudulent hiding of assets.

Timing is crucial. There is no one particular planning tool that will aid every client in protecting the assets. Every situation is unique. The main lesson, however, applies to everyone: planning must be done in advance of litigation. Protecting or transferring assets after there are claims, may expose the client and the attorney to criminal and civil liability.

What one can be sued for: In general, one can never be sure what one will be sued for. If a person is a sole proprietor, then he can be sued for his business. If there is a corporation or an LLC, the corporate veil can be pierced. If one is a general partner, the partnership’s debts may cause personal issues. And generally, there is a “deep pocket syndrome” in America, where lawyers often base their analysis on whether the opposing party can pay a judgment.

Tools of asset protection: Gifting, joint ownership, insurance, corporations, family limited partnerships, domestic trusts, foreign trusts.

Result of asset protection: The client will divest himself of assets and still retain a degree of control over the property. As a result, if  / when in the future a cause of action accrues, there will be little incentive for the opposing side to sue, because there will be little or no assets to pursue.

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


Tuesday, May 5, 2015

When does a Trust need to pay New York State income taxes?

Resident Trust: In general, a Trust is considered a Resident Trust and the Trustee must file New York State income tax, if the Trust was created by a New York State Testator or Grantor. What that means is if the property was being transferred to a Trust from a person who was domiciled in New York State, then the Trust is a Resident Trust and will be taxed according to New York State rules.

Exempt Resident Trust Exemption. New York will not tax the income from the Resident Trust if, during a particular year, it had no New York State domiciled trustees, the entire corpus of the Trust was located outside of New York and all income and gains of the trust were derived from sources outside of the State of New York. Thus, if the Trust has only intangible assets, such as stocks and bonds, and all the Trustees are domiciled outside of New York, the Trust will meet the exemption and will not be taxed based on New York State rules.

New York beneficiaries exemption . Unfortunately, even if the Trust qualifies for an exemption, all distributions from the Trust to New York resident beneficiaries will be taxed by the New York State. This tax can be avoided by either not distributing money from the Trust, or distributing money to other beneficiaries who are not New York residents.

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.

 


Tuesday, April 28, 2015

Taking family dynamics into consideration, or thinking of expected family issues when planning!

When drafting a testamentary or an estate plan, one always should always consider family dynamics in order to preserve family relationships.

Parents may have several concerns about their children: entitlements, sibling rivalry, children’s spouses, safeguard from malpractice actions, and safeguard from drug abuse.

Entitlements: for parents of younger or minor children, the parents may not know what the children are going to be like when they grow up. It is up to the parents to build in incentives into their estate plan, so that the child graduates college, gets a career, waits until a certain age to get married, etc. One must be careful of entitlements that are against ‘public policy’ as those may be found void by the courts. Explicitly racist bequests (i.e. no money if she marries a Chinese) will not be upheld.

Sibling rivalry: most parents should be concerned about sibling rivalry. Once the parent is gone, the glue that held the family together may be gone as well.  A typical parent usually names the older child as the trustee or an executor of the trust, despite the feeling of ill-will that this nomination may cause. One method to avoid the rivalry may be to name a third party executor or a trustee.  This way the children may actually unite against a common enemy, who is not distributing the assets fast enough (in their opinion).

If the parent has left different provisions to children, it is imperative that the parent have a conversation with the children about his plan prior to his own demise. It is unfair to all siblings involved, if the disinherited child will find out about his disinheritance from the other siblings. In addition to feelings of resentment against the parent, the disinherited child may also suspect the other siblings in coercing the parent into doing what was done, and may start litigating.

Spouses of the Children:  parents usually want to leave bequests to their children and grandchildren, but not necessarily to the spouses of their children. Bequests to spouses may either be specifically avoided, or restricted, such that if the spouse divorces the child, the bequest will terminate.

Protection from malpractice action: A lot of the trusts that are now set up are done to protect the beneficiaries from creditor actions. The trust can be structured in a way that permits the beneficiary to enjoy the assets but not to technically own them.

Protection from drug abuse: if the parent is concerned about a child who has a drug, alcohol or gambling problem, naming a third party trustee is almost a necessity. The trust may also permit a trustee to engage in periodic testing of the child, and to stop making any payments to the child, in full discretion of the trustee. The goal is to provide for the child’s basic needs (shelter, food, clothing), and potential rehabilitation, without supporting the problem.

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


Friday, April 24, 2015

Can Wills be challenged? Absolutely! A disowned daughter and an almost-disowned son prove that it is possible to do so even when the grounds for the challenge are legally dubious!

A lot of people think that if a Will was executed under a supervision of an attorney, then the Will is a rock solid instrument that cannot be challenged. However, that is not a case. A Will can be challenged on many grounds (incapacity, coercion, fraud, forgery and improper execution are some of the common ones).

A Brooklyn father executed a Will explicitly disowning his daughter, while leaving his son $500 a week for life, with the remainder of his $8MM fortune going to an animal charity. Both children have successfully challenged the Will. The case never got to trial. A psychiatrist that the daughter hired diagnosed her father (post mortem) with a diagnosis similar to narcissistic personality disorder. After the diagnosis became public, the interested parties negotiated a settlement, where the charity got less than 50% of the initial amount, while the daughter, the uncle and the son each got a significant amount of money.

Should a Will be challenged? There is no right answer to this question. Legal grounds, family harmony, amount of money at stake and specific language in the Will all need to be considered prior to any legal challenge being raised. It helps to talk to an experienced attorney to evaluate your options.

The information in this blog was adapted from

http://www.dnainfo.com/new-york/20150305/new-york-city/owner-of-brooklyn-hardware-store-hid-tens-of-millions-of-dollars-son-says

 

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


Tuesday, April 21, 2015

Can a Will be Contested? Part 1 (Undue Influence)

There are several ways in which a Will can be challenged. The three main reasons for contesting the Will include:

  1. Proper execution of a Will

  2. Whether the decedent had testamentary capacity to execute a Will

  3. Whether the Will was the product of undue influence or duress.

Whether or not the Will was the product of undue influence or duress is not easy to prove. The answer is usually determined at trial, and it is very fact specific.

In general, the objectant to the Will must establish a motive, an opportunity and actual exercise of undue influence (specific instances in which undue influence was actually exercised). Some of the issues that the court will examine include:

  • Was there was a dependency upon and subjection to the control of the person supposed to have wielded the influence.

  • Was the person who was supposedly wielding the influence present at the time of the Will execution? Was that person involved in preparing the Will?

  • Was there a prior Will? Did the new Will change the disposition of assets in unexpected and unexplained ways?

  • Did the beneficiary have a confidential relationship with the decedent? A confidential relationship includes being a lawyer, an accountant, a financial advisor, or other person of trust, who assisted the decedent in managing his financial affairs.

 

The court is likely to review all evidence regarding the decedent, including mental capacity, physical capacity, relationships with the beneficiary and relationship with the remaining family before deciding whether or not a Will should be invalidated.

Estate litigation is expensive, time consuming and embarrassing. It is better to avoid it all together, if possible. Talking to an experienced attorney who will anticipate the issues that can arise in litigation and advise about the best methods of avoiding it may save your loved ones money and heartache.

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


Tuesday, April 14, 2015

Why the Money in a Joint Account May Not Be Distributed to the Survivor (or how uneducated plans go wrong)

Many people think that if they put their money in a joint account, the survivor will automatically inherit the funds and no further claims can be laid on that money. Unfortunately, as the survivors often discover to their great chagrin, it often does not work like this easily. The other heirs, including spouses and legatees under the will, as well as the IRS and other creditors of the estate, may all have higher priority claims to these funds.

Presumption: In general, if there is ‘survivorship language’ included in the joint bank account signature card, there is a presumption that the money should go to the surviving party upon the death of the first account holder. However, this presumption can easily be rebutted with direct proof that no joint tenancy was intended, or circumstantial proof that joint account had been opened for convenience only. If the court will determine that the account was for convenience purpose only, then the funds in the account will belong to the estate and may be used to first satisfy the estate’s debts and other bequests.

Testator’s Behavior: When determining the purpose for which the account was opened, the court will first examine the decedent’s behavior in regards to this account. The court will look at the testamentary plan – did the Will give the money to the joint account holder alone or did the testator provide for other people?  If the only remaining money is in the joint account, and there are explicit gifts given to other people, the court may infer that the account was joint only for convenience purposes. In that case, the funds are likely to be given back to the estate to satisfy the other bequests.

The court will also examine the signature requirement – whether or not both signatures were required in order to withdraw money. If both signatures were required, the court is likely to conclude that the account was for convenience purpose only. Similarly, the court will inquire about who had the control of the checks during the decedent’s lifetime. Full control of the withdrawals by the decedent will likely mean that the account was joint for convenience purposes only and the money should belong to the estate.

Survivor’s behavior: The court will also look at the behavior of the surviving account holder during the life of the decedent. The court will inquire whether or not the survivor ever withdrew from or deposited money into the account. The court will also inquire whether or not the survivor knew about the decedent’s testamentary plan. Lack of access to the funds or lack of knowledge about the plan will likely mean that the funds will be brought back into the estate.

Summary:  As you can see, placing money in a joint account is not an easy panacea that people often hope it will be. When creating a testamentary plan, it helps to talk to an attorney, to determine whether the distribution of your funds will be what you intend it to be.

 

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


Saturday, April 11, 2015

Estate considerations for blended families

Second marriages bring additional estate planning considerations, especially when children from past relationships are involved. Here are some suggestions for addressing a blended family in estate planning:
  • If you are not married yet, write a prenuptual agreement, which specifies who owns which asset, the support arrangement in case of future separation, and asset distribution in case of death.  
  • If you are already married, communicate with the your new-spouse and any adult children regarding your current financial situation, and desires for distribution of those assets.
  • Set up a trust to make sure that the surviving spouse will be provided for.
  • Set up a trust to make sure that the children of each spouse get their assets.
  • Update power of attorney and advance health care directives.
  • Update any forms with beneficiary designations.
  • Prepare and share a list of personal and work contacts with your new spouse.

The information in this blog was adapted from

http://www.huffingtonpost.com/alexandra-smyser/estate-planning-for-blend_b_6754664.html

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


Tuesday, April 7, 2015

The importance of Using the Proper Language When Setting up a Special Needs Trust

In a recent New York case, In re Paradiso, the court did not reform a father’s will which left money in a trust to a disabled daughter. In the Will, the father attempted to create a testamentary special needs trust, which would not have jeopardized the daughter’s government benefits (Medicaid and SSI). However, the language that was used to create a trust was not the statutory language!

There is a statute, EPTL 7-1.12, which requires that the supplemental needs trust language must clearly show that the intent of the deceased was “to supplement, not supplant, impair or diminish, government benefits”. If there is no such precise language, the intent of the testator is not clear, and the Trust will not be considered a Special Needs Trust.

As a result, the father’s money went in a regular Trust to a disabled daughter. Since the government will consider this money available to her, she is likely to lose her government benefits. These benefits can range from housing assistance and vocational training to home care and a stipend for basic food needs. 

This result could have been avoided by talking to a special needs attorney, who would have drafted a proper testamentary Special Needs Trust.  

 

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


Thursday, April 2, 2015

New York's “Slayer Rule” gets extended!

The New York “slayer rule”, a common law principle, provides that no one should benefit financially from one’s own crime. As a result, a killer is not entitled to the proceeds from his victim’s estate.

In a recent case, Matter of Edwards, the court extended this rule. In this case, a husband killed his mother-in-law. His wife was the sole distributee of her mother’s estate. While the husband’s criminal case was pending, the wife died intestate (without a will). Since the couple had no children, by operation of law, the husband became his wife’s sole distributee. 10 months later the husband pleaded guilty to manslaughter in the first degree for the death of his mother-in-law.

The husband’s attorney argued that the husband should be able to inherit the money, because the money was coming from the wife, not the mother-in-law. The court, however, held that under the principle of the ‘slayer rule’, one should not benefit from one’s wrongdoing, especially when there is such a “clear causal link between the wrongdoing and the benefits sought”. As a result, the husband did not inherit any of his mother-in-law’s money.


Tuesday, March 31, 2015

Planning for Children with Special Needs

There are many considerations when planning for your children. There are even more issues to consider when planning for your child with Special Needs. Regardless of the child’s age, the need for special care will continue.

  1. Advanced Directives. You need to have a trusted family member or a friend to make financial decisions and health care decisions on your behalf, if you are not able to do so. The documents needed are Power of Attorney and a Health Care Proxy. Having these documents will ensure that someone has access to your money and will be able to support your children even if you are incapacitated. .

  2. Will. You can only name a guardian of your children through a Will. If you are named as a guardian of your special needs child, you can either specify an alternate guardian through the guardianship paperwork or do it through your will. You can also set up a Supplemental Needs Trust through a Will.  

  3. Guardianship. Once the child turns 18, your authority to make decisions for him will end. Prior to this age, you may want to commence a 17A guardianship, which will permit you to continue making financial and health care decisions on the child’s behalf.

  4. Supplemental Needs Trusts. These trusts provide funds for the enhancement of life for special needs children and adults, without jeopardizing their receipt of government benefits.

    1. These trusts can either be set up during life or through a Will.

    2. There are two types of Supplemental Needs Trusts:

      1. Payback Trusts: set up using the individual’s own money, need to have a Payback provision to the State

      2. Third Party Trusts – set up with other people’s money, there is no need for a payback provision.

  5. Government Services. There are many government benefits available to special needs children and adults. You need to review the various options available and plan accordingly.  

    1. Supplemental Security Income (SSI): provides a monthly stipend to a child once he or she is eligible. Funds are used to meet basic needs.

      1. Typically a child qualifies at 18 (when he is deemed to be cut off from parents’ income and assets

      2. SSI has a 3 year look back period for transfers of applicant’s own funds – so planning must start early

      3. Eligibility is based on resources (maximum of $2,000)

    2. Medicaid and Medicaid Waiver Programs: provide for home and community care, prevocational services, supported employment, respite care, vehicle modification.

      1. Some programs are resource based, others are not

 


Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.

 


Sunday, March 29, 2015

The battle for the estate of an elderly heiress and the wrong lessons for estate planning

A book (and soon to be a movie) Empty Mansions tells a story about Huguette Clark, a reclusive heiress to a copper mining fortune. Ms. Clark’s father, W.A. Clark, was the founder of Las Vegas and the copper king. His daughter spent the last 20 years of her life in a hospital, even though she was healthy.

During the last years of her life, she made large gifts to the people who were taking care of her – nurses, doctors, lawyers, accountants, etc. After her death, even though she wrote a Will and made it abundantly clear that she did not want her relatives to inherit any of her money, a long estate battle ensued. A lot of her charitable wishes cannot be carried out now because of the millions of dollars that went to lawyers, the unanticipated money that went to relatives, and the millions that had to be paid to the IRS.

There are many lessons from her (botched) estate planning that any good estate planning attorney will explain to a client:

  1. Consider creating a trust and place assets in it during the creator’s life. Trusts are harder to challenge and the information in them is private.

  2. Do not leave bequests to your accountant and your attorney in the will.

  3. Get an independent doctor’s opinion about the competency of the person making the bequest.

  4. Hire a competent accountant and a lawyer who understand the complexities and interplay of estate taxes, basis step up rules and charitable bequests. Estate planning is a very specialized area. A generalist attorney is unlikely to understand all the implications of one’s actions.

 

The information in this blog was adapted from

http://www.foxbusiness.com/personal-finance/2015/02/19/how-elderly-heiress-lost-her-300-million-fortune/

 

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


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